Meta Platforms, the parent company of Facebook (Nasdaq: FB), released its fourth-quarter and full-year earnings for fiscal year 2021 on Feb. 2. The tech giant’s weak quarterly results and first-ever decline in active daily users sent the stock tumbling over 26%. It was the S&P 500’s largest-ever one-day decline, and it stripped the company of over $230 billion worth of market value, The New York Times reported. Does that mean you should rush out to buy the stock in the dip, hold off to see what happens next — or forget it entirely? Here’s what you need to know.
Facebook by the Numbers
Sales in the fourth quarter were $33.67 billion, 20% higher than sales in the same quarter last year and outpacing analysts’ expectations of $33.4 billion, CNBC reported. However, that wasn’t enough to generate a profit in light of the social media giant’s 38% increase in total costs and expenses — some of which can be attributed to an outsized investment in its metaverse initiative — compared to the same quarter last year. Facebook finished the quarter with net income down 8% year over year.
Earnings were $3.67 per share, which fell short of the $3.84 per share analysts expected.
The average number of active daily users fell by about half a million users, according to The Washington Post.
The annual numbers paint a rosier picture:
- Total revenue: $117.93 billion, up 37% from 2020
- Profits: $39.37 billion, up 35% from 2020
- Facebook active daily users: $1.93 billion, up 5% from 2020
- Advertising revenue: $114.93 billion, up over 35% from 2020
A Revenue Beat Doesn’t Always Signal an Increase in the Stock Price
Although quarterly earnings per share were slightly lower than analysts had predicted, revenue was substantially higher and the annual results were positive overall. Yet the stock price tanked.
Why?
The answer to this question may be easier than it seems. While investors don’t have a crystal ball, they still base their trading decisions on what is likely to happen in the future, not what has happened in the past. And the future looks a little murky for Facebook.
The company had warned that advertising growth could be sluggish in the fourth quarter. Changes to Apple’s iOS operating system have made it harder for Facebook and other social media companies to target their ads to consumers, who can now opt out of having advertisers follow their every move online in order to serve up ads related to searches they’ve performed and sites they’ve visited.
There’s also the uncertainty of Washington’s concern over the misinformation that spreads unchecked on Facebook and other social media platforms. In March, Mark Zuckerberg was called to testify before Congress, along with some of his fellow tech CEOs, about what the platform is doing to ensure that erroneous information about COVID-19 and other topics isn’t shared as though it were fact. And in October 2021, Congress heard testimony from a whistleblower who leaked a trove of company documents to The Wall Street Journal. Included in the documents were research reports and employee discussions suggesting the company knew it was promoting harmful content on its social media platforms, including Facebook and Instagram, the Journal reported, but ignored the danger to protect profits — an allegation Zuckerberg denies. Facebook noted during the Q3 earnings call that it was under investigation by the government.
Facebook faces new legal troubles heading into 2022 that began just weeks into the first quarter of its 2022 fiscal year. The Federal Trade Commission has filed a lawsuit against Facebook alleging the platform has a monopoly in social media and has abused its power by engaging in a “buy-or-bury” strategy that harmed its competition, The New York Times reported. A federal judge greenlighted the suit on Jan. 11
In its 2021 annual report, Facebook reiterated risks it faces related to government regulation and enforcement as well as other litigation, including class action suits. It also noted that unfavorable media coverage could affect its ability to maintain and enhance its brand.
